China's rebound may soften Swan budget deficit blow

Gareth Hutchens, John Garnaut

Wayne Swan ... is "cautiously optimistic" about the state of the global economy. Photo: Bloomberg

THE pace of growth in China has started to accelerate, confounding sceptics and confirming the ongoing recovery of Australia's most important trading partner.

China's rebound has underpinned a recovery in commodity prices, particularly iron ore, after falling prices had dented Australia's terms of trade during the year.

If sustained, China's renewed economic vigour and the rise in commodity prices will help the federal government avoid a major blowout in the budget deficit and fund its education and disability insurance reforms - signature policies in an election year.

China's December quarter GDP growth rate of 7.9 per cent was faster than expected and up from the three-year low of 7.4 per cent recorded in the September quarter.

The surge is welcome news for the Treasurer, Wayne Swan, who used a speech in New York on Friday to declare he was ''cautiously optimistic'' about the state of the global economy, and believed 2013 could be a better year for the global recovery if governments supported jobs and growth.

He said Australia was well-placed to benefit from China's continued strong growth, and he affirmed the government's commitment to its Gonski education reforms and the National Disability Insurance Scheme.

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This was despite the multibillion-dollar hits to budget revenue last year that ''made a surplus unlikely this year''.

''The International Monetary Fund expects our economy to outperform every major advanced economy this year and next,'' he said. ''We're in the right place at the right time as Asia drives more and more of the world's economic growth. So the opportunities for Australia are huge if we get our settings right.''

The Treasurer said he was determined to have a ''positive debate'' in Australia this year despite the challenges facing the country.

''Endless pessimism is in itself a risk to the global economy, just as it weighs on business and consumer sentiment in Australia's economy,'' he said.

''I am determined to have a positive debate in Australia in 2013 about how we lock in the gains we've made in the last five years, and set our economy and our community up for the next five years.''

Stephen Joske, an economist and investment strategist in Beijing for Australian Super, said the strong momentum in China showed the commodities boom, which has underpinned the Australian economy for nearly a decade, was shifting to a new phase.

''The big picture message is that all that talk last year about a hard landing in China, which was dominating thinking at one stage, was completely wrong,'' Dr Joske said.

Mr Swan reiterated those comments in his speech, saying the facts about China's rate of economic growth stood in ''stark contrast'' to recent commentary.

''It just goes to show that you can't have a mature debate about long-term economic performance based on monthly data,'' he said.

The Treasurer also used his speech to criticise the behaviour of the US Republican Party when it came to debates about the ''fiscal cliff'' and the US debt ceiling.

''I'm deeply concerned about the next flashpoint on the horizon - the looming US debt ceiling debate,'' he said. ''We all remember too well the chaos and confusion in the global economy last time the debt ceiling was used by some elements of Congress to hold the nation to ransom.''

However, he acknowledged the world's biggest economies were besieged by problems, and said policymakers had to do the right thing by growth and jobs. ''It's up to governments around the world to act responsibly to support growth and jobs and to keep the global recovery on track.''